Elliott Management: What’s Behind the $1.9bn Stake in Southwest Airlines?

Hedge Fund Elliott Investment Management announced June 10th that they took a $1.9 billion stake in Southwest Airlines – It’s now got me asking, why?

Motivated by the prospect of potential with a new leadership team, Elliott Management is determined to use this ~11% ownership in the company to return Southwest Airlines to the thriving success they experienced pre-pandemic (Coulman & Crowther 2024).

They quoted “Southwest’s poor execution and leadership’s stubborn unwillingness to evolve the company’s strategy have led to deeply disappointing results for shareholders, employees, and customers alike” from the statement given by the firm.

They believe that Southwest’s rigid commitment to “decades-old approach” has prevented the company from competing modern-day in the airline industry.

Elliott Management’s plan for modernization of the airline starts with a new leadership team. This includes replacing long-time CEO Bob Jordan, the executive chairman, and some members of the board of directors for the company (Coulman & Crowther 2024).

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“The Southwest board of directors is confident in our CEO and management’s ability to execute against the company’s strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers and deliver on our commitments to all of our stakeholders” Southwest commented in their statement (Southwest 2024). A.K.A. Southwest is not ready for lift-off of the 737-Elliott-Management plane.

Southwest – the airline known for their discounted flight tickets and first-come, first-serve seating model – had a thriving year in 2019, although that is the last time we saw the company thrive in the market. In 2019, pre-pandemic, Southwest reported a net income of $2.44 billion and has since continued to decline in profitability.

2021 reported a net income of $977 million and that number declined further and further in 2022 and 2023. Most recently in Q1 of 2024 it has lost $230 million. It is safe to say that the post-pandemic era has not been kind to Southwest Airlines.

The reputation of Elliott Management alone spiked Southwest shares up 8% before any details of the firm’s plan for Southwest’s resurrection were revealed to the public.

Founded in 1977, Elliott Management manages about $66 billion in assets and is famous for agitating change in underperforming companies. They have only lost money in two of the 47 years they have been in operation.

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With a historical 4% chance of them losing money again in 2024, the odds are in Elliott’s favour.

Famous historic investments by Elliott Management include eBay, Pinterest, and PayPal – raising them from the ashes, otherwise known as, boosting their stock prices.

Not too long ago in May of 2024, Elliott Management disclosed a similar $2.5 billion position in Texas Instruments. The company known for making semiconductor chips, failed at creating profitable cash flow, decreasing their $/share value 77% in 2023.

They urged the company to improve their free cash flow by using a dynamic capacity management strategy in hopes to bring their cash flow up 612% to $9 per share by 2026 (Reuters 2024).

Unlike Southwest, Texas Instruments stock price only increased half of a percent after the announcement by Elliott Management (McColl 2024).

Only further proving Elliott Management’s point of Southwest’s more public downfall and Elliott’s hero to the rescue motto. A stock that increased more extremely than Southwest after the announcement was Elliott’s investment in Pinterest – boosting their stock price up 21% (Reuters 2022).

For the public’s sake, hopes are trending towards Southwest being returned to their glory days while simultaneously maintaining their status of cheaper prices, great snacks, and a friendly crew.

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